NEW DELHI / TEHRAN, (Reuters) - Iran said an Friday that an oil payments impasse with India had been resolved by changing the currency of settlement, according to its Fars news agency, which would preserve a trade in crude worth $12 billion a year.

Central bank officials from Iran and India met in Mumbai on Friday in an effort to keep the oil trade running, and forcing New Delhi to strike a delicate balance between its energy needs and its global diplomatic interests.

"By changing the currency for oil transaction between Iran and India the problem was solved," Iran's deputy oil minister, Ahmad Khaledi, was quoted as saying by the semi-official Fars.

The Reserve Bank of India (RBI) said last week that oil trade payments to Iran could no longer be settled using a long-standing clearinghouse system run by regional central banks, and Tehran has refused to sell oil outside the old set-up.

This week, the RBI extended the move to apply to all current account transactions.

The White House, which wants governments to stop dealing with Iran because of its nuclear program, praised the move, which came less than two months after President Barack Obama's trip to India on which he pledged to help boost New Delhi's global role.

A spokeswoman with the Indian central bank did not have an immediate comment on Friday.

"In order to not allow Americans and Europeans to create any problem, we said let's do our business in other currencies like (Emirate) dirham or (Japanese) yen," Khaledi was quoted as saying.

Indian officials and traders had been hopeful of a quick resolution to the payments row that could have disrupted about 13 percent of its oil imports and leave refiners scrambling for expensive alternative sources of crude.

"We are extremely hopeful that this impasse will be resolved shortly as Indian companies every week get crude supplies from Iran," B. Mukherjee, head of finance at state-run Hindustan Petroleum Corp, told Reuters earlier on Friday.

Other importers of Iranian crude include state-run Indian Oil Corp and Mangalore Refinery and Petrochemicals Ltd and privately-run Essar Oil.

U.N. sanctions on Iran do not cover oil sales.

ALTERNATIVES

India and Iran could agree to settle deals in Iran's rial or another currency such as the yen, Indian Oil Secretary S. Sundareshan suggested on Thursday.

South Korea pays for Iranian crude using the won.

Payments could also be routed through a third-country central or commercial bank.

An economy growing at about 9 percent a year has made India the world's fourth-largest importer of crude. Iran is its second largest supplier after Saudi Arabia.

Indian oil importers get 90 days credit for payment so they are covered for old transactions, but future shipments would be in jeopardy if the matter had not been resolved.

India buys about 400,000 barrels per day of Iranian crude, settling payments through the Asian Clearing Union, a system created in the 1970s by central banks in South Asia and Iran to clear trade payments between them.

Critics say the scheme is opaque to the monitoring of flows into Iranian organizations against which the United States has sanctions, as settlements are made on a net basis every two months.

Suspending Iranian imports when global crude prices are at near two-year highs and when Indian inflation is uncomfortably high would be costly for India.

India and Iran have long-standing ties but analysts say irritants and a new strategic thinking are prompting New Delhi to adopt a more nuanced and assertive policy.

New Delhi's interests are increasingly tied with the United States, and it is also mindful of Arab concerns over Iran's nuclear ambitions.

"When it comes to Iran, India can ignore pressure from the U.S. and noises from Israel, but it cannot ignore concerns from the Arab countries," said P.R. Kumaraswamy, head of West Asian studies at New Delhi's Jawaharlal Nehru University.

"In a very subtle way, India is sending a message that its closeness with Iran will not affect relations with other Middle Eastern countries."

Iran is one of those contentious issues and will really test how India will be able to balance its interests at different levels.

On one hand:
Iran provides 18-20% of crude oil, any disruptions will result in a hit to the economy and an increase in inflation. Its also a crucial link to Afghanistan and Central Asia for India. And Iran is one of the few countries that India has a security agreement with and has also shown strong interest in getting Indian co-operation and expertise in military and defence sectors among others. This was mainly active during Khatami-Vajpayee period but has slowed of late. Engaging Iran is also necessary to restrict the growing Chinese influence in the Gulf region.

The othe hand:
We have the US and EU, followed Israel and the GCC bloc including Arab countries like Egypt who are compleately against Iran getting nukes and have a very tense relationship with Iran. All these are important partners and their viewpoints have to be taken into account as well. Particularly when all these blocs are united in their opposition to Iranian nukes and strenghtening of the sanctions regime.

Its a tightrope balancing act that India will have to get used to in the coming years.